Big 5 Sporting Goods was on the wrong side of the winter weather cycle on the West Coast in the 2023 fourth quarter as warm temps and lack of snow cut into any winter-related categories from apparel outerwear to winter sports equipment. That phenomenon, combined with the ongoing macroeconomic challenges that most retailers are facing across the country, made the quarter particularly tough for the LA County-based company.

Overall net sales for the fourth quarter were $196.3 million, compared to $238.3 million in the prior-year Q4 period, reflecting a 17.7 percent decrease in same-store sales.

Company President and CEO Steven Miller said that winter-related products, which are typically an important seasonal driver of the retailer’s fourth-quarter business, were affected a great deal by the quarter’s warm weather and lack of snow. He said the weather aspect “weighed heavily” on the category’s performance, which was down nearly 40 percent versus the prior-year quarter.

Sales of non-winter products were down approximately 10 percent, consistent with the guidance that the company provided at the beginning of the quarter.

“The unfavorable winter weather impacted each of our major merchandise categories, but certainly the greatest impact was to our apparel category, which is heavily correlated to winter weather,” Miller noted.

The Apparel category was down approximately 30 percent year-over-year in the fourth quarter. The Footwear category was down approximately 17 percent and the Hardgoods category was down approximately 11 percent for the period.

Transactions for the quarter were said to be down in the mid-teens and the average ticket was down low single digits.

Sales in the first quarter-to-date reportedly continue to be influenced by ongoing macroeconomic pressures, which are disproportionately impacting Big 5’s core value-oriented consumers. Miller said weather volatility continues to play a role in sales results, with first quarter-to-date sales running down in the low teens.

“In January, the quarter got off to a difficult start with a lack of winter weather while comping against very strong winter business in the prior-year period,” Miller said. “In February, our winter seasonal categories have picked up with the arrival of winter weather that brought significant snowfall to many of our markets.

“Unfortunately, the snowfall in the mountains was accompanied by historic rainfall at lower elevations that has clearly impacted sales of and participation in team sports and other outdoor recreational activity,” he continued. “This has been particularly evident in our baseball category, which has become increasingly important to our business over the course of the first quarter. We are optimistic that we have the potential to capture some sales upside from pent-up demand as the baseball fields dry out.”

Miller said he believes the Big 5 overall product assortment is well positioned to resonate with its customers and reinforce its reputation for value.

“That said, the macro uncertainty persists and we anticipate that many of our customers will continue to feel the squeeze in their wallets and be cautious with their discretionary spend,” he added.

“As we navigate this uncertainty, and look for ways to energize our sales, we remain committed in our efforts to maximize our gross profit dollars through optimizing merchandise margins while efficiently managing our inventory and rigorously controlling expenses,” he said. “These measures will not only fortify our resilience in this challenging environment but also position us advantageously to seize opportunities as the macroeconomic landscape improves.”

Fourth quarter gross profit was $59.2 million, compared to $79.8 million in the 2022 fourth quarter.

The company’s gross margin was 30.2 percent of net sales in the fourth quarter versus down 330 basis points from 33.5 percent in the prior-year fourth quarter. The decrease in gross margin compared with the prior-year Q4 period was said to primarily reflect higher store occupancy and distribution expense, including costs capitalized into inventory, as a percentage of net sales, partially offset by the extinguishment of certain real estate-related liabilities.

“In the face of a challenging sales environment, we have continued to focus on the aspects of the business that we have more control over, such as merchandise margins, inventory levels and expense management,” Miller explained. “Our fourth quarter merchandise margins were down 43 basis points, which primarily reflected the year-over-year product mix shift away from higher margin winter-related sales.”

Miller said that managing operating costs was another area of focus for the retailer.

Overall selling and administrative expense for the quarter decreased by $5.1 million from the prior-year comp quarter, said to be primarily reflecting lower employee labor and benefit-related expense, partially offset by a $0.6 million store asset impairment charge.

“Despite facing significant wage inflation, we were able to reduce our company-wide store labor expense by $2.7 million in the fourth quarter on a year-over-year basis,” he offered. “This was accomplished primarily by our diligent management of store labor usage.”

Selling and administrative expense increased to 36.9 percent of net sales in the fourth quarter, compared to 32.5 percent in the fiscal 2022 fourth quarter, due to the lower sales base.

Miller said operating expense continued to benefit from reduced levels of marketing spend versus pre-pandemic.

“Expense management has always been one of our strengths, and this focus is particularly important today given the inflationary pressures in a challenging sales environment,” he said.

Net loss for the 2023 fourth quarter was $8.9 million, or a loss of 41 cents per basic share, including a 2 cents per share store asset impairment charge, which was not reflected in the company’s guidance for the quarter. This compares to net income of $1.7 million, or 8 cents per diluted share in the fourth quarter of fiscal 2022.

Adjusted EBITDA was negative $8.7 million for the fourth quarter, compared to EBITDA of positive $6.9 million in the prior-year comp quarter.

Fiscal Full-Year Highlights
Net sales were $884.7 million in 2023, compared to net sales of $995.5 million for fiscal 2022.

Same-store sales decreased 11.2 percent for the fiscal 2023 full year compared to fiscal 2022.

Miller said Big 5 maintained very healthy merchandise margins that were flat with the prior-year period and substantially higher than pre-pandemic levels.

“Our margins continue to benefit from the steps we have taken to manage our inventory as efficiently as possible to align with the challenging sales environment,” Miller added.

Net loss for fiscal 2023 was $7.1 million, or 33 cents per basic share, compared to net income for fiscal 2022 of $26.1 million, or $1.18 per diluted share.

Adjusted EBITDA was $7.3 million in full-year 2023, compared to $52.6 million in fiscal 2022.

Balance Sheet
The company ended the 2023 fiscal year with no borrowings under its credit facility and with a cash balance of $9.2 million. This compares to no borrowings under the company’s credit facility and $25.6 million of cash as of the end of fiscal 2022.

Merchandise inventories as of the end of fiscal 2023 decreased by 9.1 percent compared to the prior-year period-end, reflecting the company’s efforts to manage inventory levels relative to sales.

“And for the most part, we have not needed to be overly promotional for the sake of clearing merchandise, which has helped us maintain very healthy merchandise margins,” Miller noted.

Cash Flows
Net cash provided by operating activities was $18.5 million in fiscal 2023. This compares to net cash used in operating activities of $28.4 million in the prior year. The year-over-year improvement in operating cash flow was said to primarily reflect reduced funding of merchandise inventory, partially offset by lower net income this year.

Quarterly Cash Dividend
As part of efforts to navigate this economic cycle, Miller said the company has continued to evaluate its capital allocation strategy to maintain ample financial flexibility given the uncertainty of the duration of the macroeconomic headwinds its customers are facing.

“As part of that evaluation, concurrent with today’s earnings release, we announced a decrease in our quarterly dividend from 12.5 cents per share to 5 cents per share,” he confirmed. “Our dividend has long been central to our capital allocation strategy and over the years, we have adjusted it periodically, both up and down to reflect changing business circumstances. As the current environment stabilizes, we will continue to evaluate our use of cash with the goal of maintaining a healthy balance sheet while also providing shareholders a meaningful return.”

Store Openings
During fiscal 2023, the company opened two new stores and closed four stores, ending the year with 430 stores. The company currently has 424 stores in operation, reflecting six store closures in the 2024 first quarter to date as part of the company’s ongoing efforts to optimize its store base.

During the remainder of fiscal 2024, the company expects to open approximately five stores and close approximately four additional stores.

First Quarter Guidance
For the fiscal 2024 first quarter, BGFV expects same-store sales to decrease in the low double-digit range compared to the fiscal 2023 first quarter.

“Our same-store sales guidance reflects an expectation that macroeconomic headwinds will continue to impact consumer discretionary spending over the balance of the [first] quarter,” offered CFO Barry Emerson.

Fiscal 2024 first-quarter net loss per basic share is expected in the range of 30 cents to 40 cents, which compares to fiscal 2023 first-quarter earnings per diluted share of 1 cent.

Image courtesy Big 5 Sporting Goods Corp.